Real GDP per capita is roughly the same as in 2000 and well below its pre-crisis peak. Though the employment rate has risen, it is still one of the lowest among OECD countries, especially for women. Job quality is low and the mismatch between people’s jobs and their skills is high by international comparison. Productivity growth has been sluggish or negative for the past 20 years.

Absolute poverty rates for young people rose sharply as a result of the crisis and remain high. Poverty rates vary widely between regions and in southern regions are among the highest in the EU. Only a small share of social benefits (excluding pensions) for the working age population go to the people most in need. The dearth of job opportunities pushes many young people to emigrate, exacerbating Italy’s already fast population ageing.

The already large regional differences in GDP per capita and employment rates have widened over recent decades. Regional disparities in employment rates explain much of the difference in living standards among regions.

Renewable energy sources have expanded rapidly from 2000 to the mid-2010s but have stalled since then. Air pollution is high in some area, resulting in high mortality and harming well-being. Other environmental challenges result from weaknesses in public administration, reflected in patchy waste collection and management and deficient hydrological risk management. The administrative fragmentation and limited power of metropolitan bodies is an obstacle to the integration of land use and transport policies, hampering the design of low-emission growth policies.

Italy faces the double challenge of reviving growth and making it more inclusive while putting the public debt on steady downward path. Tackling Italy’s structural challenges requires a multi-year reform package to achieve stronger and more inclusive growth, and revive confidence in the reform capacity of the country. The ambitious reform package proposed in this Survey would support stronger employment, improve well-being and raise productivity growth. By 2030, annual trend GDP growth would increase from 0.6% under current policies to above 1.5%. If accompanied by a rise of the primary surplus to above 2%, the proposed reform package would help to put the debt-to-GDP ratio on a downward path.

Increasing productivity growth is key to raising living standards and to offsetting the large negative effect of demographics and a shrinking labour force. This will require: enhancing competition in markets that are still protected, such as professional services and local public services; raising innovation and business dynamics, including through targeted incentives connected to the Industry 4.0 plan; removing obstacles hampering the growth of SMEs; and enhancing the efficiency of public administration by raising accountability and transparency and pursuing the digitalisation of the public sector.

A credible medium-term plan to reduce the debt-to-GDP ratio will improve fiscal credibility and help contain the risk premium on government debt. Without sustainable fiscal policy, the room to enhance infrastructure, help the poor and deliver the public services people expect will inevitably narrow. Designing budgets within the EU Growth and Stability Pact, which should be implemented in a pragmatic way, would help to strengthen fiscal credibility by providing an anchor to fiscal policy. If fiscal credibility can be improved rapidly, a falling risk premium on government debt would accelerate the reduction of the debt ratio.

Public spending needs to become more efficient and better targeted with a fairer tax system. Designing thorough spending reviews during the preparation of the yearly budget and effectively implementing them would promote priority-setting and spending re-allocation, contributing to free up resources for effective public programmes and public investment. Improving voluntary tax compliance and vigorously fighting tax evasion are key for tax revenues and allow for a reduction in tax rates, making the tax system fairer.

The health of the banking system has improved but challenges remain. The government strategy to deal with insolvent banks through a mix of resolutions, recapitalisations and acquisitions has yielded fruit. Banks’ capital ratios are above minimum requirements. The stock of nonperforming loans in banks’ balance sheets has fallen markedly over the last two years and profitability has returned, though it remains low. The banking sector is undergoing a rationalisation and consolidation process, but the reform to cooperative banks is still to be fully implemented. The health of the banking sector is closely linked with public finance and its effects on government bond yields. Lower government bond yields would help to safeguard the stability of the banking sector.

A key part of making growth strong and more inclusive involves increasing formal employment. Italy’s tax and benefit system and social services can do more to support employment in low-wage regions and for second earners. The transfer and eligibility rules of the Citizen’s Income will need to ensure work incentives are strengthened and not weakened because of higher transfers. The level of the transfer provided by the current plan for the Citizen’s Income risks encouraging informal employment and creating poverty traps. Ensuring transfers are conditional on well designed and monitored employment and social inclusion “pacts” is key to supporting beneficiaries to move into employment. Introducing an in-work benefit system and lowering the Citizen’s Income benefit to about 70% of the relative poverty line (50% of the median equivalised household income) would contribute to raising employment, especially in lagging regions, and protecting households from poverty.

The success of any guaranteed minimum income scheme will hinge on improving job-search and training programmes. This will depend on implementing a multi-year plan to revamp public employment services based on higher investments in IT systems, profiling tools and human resources, especially in lagging regions where social needs are greater and more urgent. Developing strong partnerships with private-sector job-search and training agencies and extending the existing training voucher to include both Citizen’s Income beneficiaries and other job seekers would improve their job prospects. Stronger collaboration and coordination between public employment service and municipalities’ social assistance programmes would help to achieve the Citizen’s Income objectives. Integration of immigrants through language and professional training courses and certifying immigrants’ skills would support social inclusion, and boost labour force participation.

Rationalising and improving coordination among the bodies involved in regional development policies by strengthening the role and expertise of central-government bodies would make regional policies more effective. Funds for regional development policies need to add to, and not to substitute for, ordinary spending. The ordinary public administration needs to offer a more similar level of essential services across the whole country. Setting and enforcing minimum performance standards for services provided by sub-national administrations, such as active labour market policies or waste management, would go in the right direction. Local public administrations that repeatedly fail to achieve these minimum standards should undergo a restructuring programme in collaboration with better performers and the central government to strengthen capacity, reorganise processes and enhance accountability and transparency. Improving the governance of metropolitan areas would enhance agglomeration economies and strengthen the role of metropolitan cities as engines of green growth. Progress in this area will hinge on regions and municipalities sharing some of their functions and budget with metropolitan bodies.